Custom, Excise & Service Tax Tribunal
Dirk India Pvt. Ltd. vs Commissioner Of Central Excise And ... on 16 December, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 1238 of 2012
(Arising out of Order-in-Appeal No. AKP/56/NSK/2012 dated 30.04.2012
passed by the Commissioner of Central Excise & Customs (Appeals), Nashik)
M/s. Dirk India Pvt. Ltd. Appellant
Gat No. 348, Behind Nashik Thermal
Power Station, Eklahara,
Nashik 422 105.
Vs.
Commissioner of Central Excise & ST, Nashik Respondent
Kendriya Rajaswa Bhavan,
Gadkari Chowk, Nashik 422 002.
Appearance:
Shri A.B. Nawal, Chartered Accountant, for the Appellant
Shri Dhirendra Kumar, Joint Commissioner, Authorised Representative
for the Respondent
CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL)
Date of Hearing: 16.12.2022
Date of Decision: 16.12.2022
FINAL ORDER NO. A/86295/2022
PER: SANJIV SRIVASTAVA
This appeal is directed against Order-in-Appeal No.
AKP/56/NSK/2012 dated 30.04.2012 passed by the
Commissioner of Central Excise & Customs (Appeals), Nashik.
By the impugned order, Commissioner (Appeals) has upheld
Order-in-Original No. 52/Addl./Adj/2011 dated 30.11.2011
passed by the Additional Commissioner of Central Excise &
Customs, Nashik, holding as follows:-
"ORDER
1) I confirm the demand of the Central Excise duty of
Rs.42,21,203/- (Forty two Lakh twenty one thousand two
hundred three only) as shown in Annexure-A to show cause
notice.
2 E/1238/2012
2) I also confirm the demand of interest at the appropriate rate
under Section 11AB of the Central Excise Act, 1944; and order
it's recovery from the noticee.
3) I impose Penalty of Rs.42,21,203/- (Forty two Lakh twenty
one thousand two hundred three only) under the provision of
Rule 25 of CER, 2004.
4) I also order that the B-17 Bond for Rs. 250 lakhs along with
Bank Guarantee for Rs. 12.50 lakhs executed by the said
assessee may be enforced if the noticee fails to honour the
finding of aforesaid Order-In- Original in as much as either pay
the duty demanded and confirmed alongwith interest at
appropriate rate as applicable under Sec. 11AB of CEA, 1944
with penalty imposed under Rule 25 of the Central Excise Rules,
2004 or produce an evidence that an appeal alongwith stay
application has been preferred with appropriate appellate
authority within the period provided under the law."
2.1 Appellant is a 100% EOU situated at Gat No. 348, behind
Nashik Thermal Power Station, Eklahara, Nashik. They are
engaged in manufacture of processed fly ash falling under
Chapter Heading 26201900 of Central Excise Tariff Act, 1985,
exempted by Notification No. 76/86-CE dated 10.02.1986.
2.3 Appellant was functioning as DTA and got converted to
EOU in August 2009 and commenced production on 07.08.2009
as an EOU. They are procuring imported packing materials,
consumables. Capital goods etc. duty free for manufacture of
their finished products and export in terms and conditions of
exemption Notification No. 22/2003-CE dated 31.03.2003 (as
amended). They are also availing Cenvat credit and service tax
credit on input and input services under Cenvat Credit Rules,
2004.
2.4 As per ER-2 filed by the appellant during the period August
2009 to March 2010, appellant had cleared their final products in
DTA under para 6.8(a) of Foreign Trade Policy 2009-2014 at
concessional rate of duty in terms of para 2 and 4 of Notification
No. 23/2003-CE dated 31.03.2003 as amended. On a total
3 E/1238/2012
value of clearance of Rs.12,08,23,316/- they have paid duty of
Rs.21,87870/-.
2.5 Appellant has converted their unit from DTA to EOU in
August 2009. The DTA sale at concessional rate of duty is
permitted subject to fulfillment of conditions in para 6.8 of
Foreign Trade Policy 2009-2014. Revenue was of the view that
the appellant was not fulfilling the conditions as laid down in
para 6.8 of Foreign Trade Policy. Accordingly a show cause
notice dated 09.09.2010 was issued to the appellant asking
them to show cause as to why:-
"1) The Central Excise duty of Rs.42,21,203/- (Forty two Lakh
twenty one thousand two hundred three only) as shown in
Annexure- A on the clearances of irregular DTA sales at
concessional rate of duty for non fulfillment of the conditions of
Notfn. No.22/2003 CE dtd.31.3.2003 (as amended), Notfn.
No.52/2003- Cus dtd.31.3.2003 (as amended) and Notfn.
No.23/2003- CE dtd.31.3.2003 (as amended) read with para
6.8(a) of Foreign Trade Policy and Appendix-14-1-H of Handbook
of Procedures should not be demanded and recovered from the
said assessee under section 11A of the Central Excise Act, 1944;
2) The interest at the appropriate rate should not be recovered
from them on the Excise duties payable under Section 11AB of
the Central Excise Act, 1944;
3) Penalty should not be imposed on them under Rule 25 and
Rule 26 of Central Excise Rules, 2004;
4) The B-17 Bond for Rs. 250 lakhs executed by M/s. Dirk India
Private Limited (EOU) should not be enforced and Bank
Guarantee of Rs.12.50 Lakh submitted by them should not be
encashed for recovery of duties and interest involved in this
Show Cause Notice, for breach of conditions of Licence granted
under Section 58 and 65 of Customs Act, 1962, conditions of
letter of permission and non-fulfilling the conditions given in the
Bond B-17."
4 E/1238/2012
2.6 This show cause notice has been adjudicated by the
Additional Commissioner as per the order referred in para 1
above and the appeal against the said order has been dismissed
by the Commissioner (Appeals) by the impugned order. Hence
this appeal.
3.1 We have heard Shri A.B. Nawal, Chartered Accountant for
the appellant and Shri Dhirendra Kumar, Joint Commissioner,
Authorised Representative for Revenue.
3.2 Arguing for the appellant, learned counsel submits:-
Order has been passed in violation of principle of natural
justice without affording any opportunity of personal
hearing hence bad in law;
Appellant are engaged in the manufacture of "processed
Fly Ash". The "Fly Ash" Is generated by the Eklahare Power
Plant and the said fly ash is processed by the Appellant in
their EOU. As nature of product indicates, ash remnants
has to be removed at the earliest so as to avoid
environmental hazards. They cannot store the residue/
remnants of the fly ash for long period and so after export
cleared the same in DTA within the limit of 50% of
Exports. As per Maharashtra Pollution Control Board
Certificate granted to the Appellant they are instructed not
to deposit or store any hazardous material in their factory,
and so Appellant cannot wait for completion of quarter to
clear the residue/ remnant fly ash.
Appellant have cleared the said goods in DTA against every
day's export and within the entitlement. Though an EOU
appellant had not imported capital goods or inputs used
except for some packing material and therefore, each
export consignment is having substantial value addition
and NFE more than 90% and thereby achieved NFE for
each export consignment even considering imports which
is negligible. There is no requirement of achieving positive
NFE for clearing scrap / wastage / remnants.
Appellant is a one Star Export House and as per para
6.38.8 of the Handbook of Procedure not required to take
permission for DTA sale from the Development
5 E/1238/2012
Commissioner or Jurisdictional Central Excise authority.
Appellant had sent Intimation to the Development
Commissioner and Jurisdictional Assistant Commissioner
Central Excise & Customs, Division - III, Nasik.
Appellant has cleared residuals/ remnants in DTA in
accordance with para 6.8 e of FT read with Notification No.
23/2003 CE dated 31.03.2003 as amended.
The residual of fly ash cannot be stored on account of
Environmental hazard and therefore it has been cleared
from EOU to DTA for disposal in terms of Environmental
norms. NO duty can be demanded under proviso to Section
3 of Central Excise Act 2002, which is reproduced below:
"Provided that the duty of excise which shall be levied and
collected on any excisable goods which are produced or
manufactured by a hundred per cent. export-oriented
undertaking and brought to any other place in India, shall be an
amount equal to the aggregate of the duties of customs which
would be leviable under the Customs Act, 1962 (52 of 1962) or
any other law for the time being in force, on like goods produced
or manufactured outside India if imported into India, and where
the said duties of customs are chargeable by reference to their
value, the value of such excisable goods shall, notwithstanding
anything contained in any other provision of this Act, be
determined in accordance with the provisions of the Customs
Act, 1962 and the Customs Tariff Act, 1975 (51 of 1975)."
4. In the present case the products cleared by EOU is not
manufactured or produced outside India and is not imported in
India.
5. Appellant relies on the following decisions:
• HYDERABAD INDUSTRIES LTD. Versus UNION OF INDIA -
Constitution Bench [1999 (108) E.L.T. 321 (S.C.)]
Customs duty (basic) and additional customs duty
(Countervailing Duty) - Charging provisions - For the purpose of
determining the levy of customs duty on goods imported into
India what is relevant is Section 12 of the Customs Act, 1962
6 E/1238/2012
read with Section 2 of the Customs Tariff Act, 1975 - But the
charging section for the levy of additional duty equal to Central
Excise duty on like articles is not Section 12 ibid but Section 3 of
the C.T.A., 1975 - Customs Act, 1962 and Customs Tariff Act,
1975 are two separate independent statutes - Contrary view in
1985 (20) E.L.T. 222 (S.C.) overruled.
3.3 Arguing for the Revenue, learned AR while reiterating the
findings recorded in the impugned order submits:-
As per para l (e) of Appendix 14-1-H of HBP, an application
for sale of goods in DTA by the EOU'S shall be submitted to
the Development Commissioner concerned in the form given
at Annexure-A and that the Development Commissioner
concerned will determine the extent of the DTA sale
admissible and issue authorization in terms of value. The
Commissioner (Appeals) observed that in the present case
the appellants have not submitted any documentary proof
of having submitted application to the Development
Commissioner in Form Annexure A.
The substantial question involved is whether the appellant
fulfilled the condition of the notification for concessional
duty rate. In para 14 of OIA, the Commissioner (Appeals)
has observed that para 6.8(a) itself mentions the condition
of fulfillment of positive NFE for clearing the goods at
concessional duties.
The goods cleared in DTA were not 'scrap/waste/remnants
arising out of production process. These were the same
products as cleared for export. Appellant in their reply dated
10.03.2011 to SCN at para 3.4 has stated that they sold the
similar goods in DTA under the para 6.8 (a). Further in the
quarterly report etc. also they have informed that what was
cleared in DTA was Processed Fly Ash.
He also relies upon the decision of Hon'ble Supreme Court in
the case of Dilip Kumar & Company [2018 (361) ELT 577
(SC)].
4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of argument.
7 E/1238/2012
4.2 Appellant is an EOU, starting from processed fly ash
received thermal power plant convert it into manufacture of
pozoocrate which is used for building bricks/blocks. During the
course of processing there is certain residual material which
needs to be disposed off and Maharashtra Pollution Control
Board does not allow to store fly ash being hazardous in nature
creating air pollution. The residual material needs to be
disposed off simultaneously on the same day when it is
produced. This fact is recorded in Appellate Order dated
14.02.2012 issued by F. No. 12013/21/2011-ADJ/AC, Ministry of
Commerce & Industry. In para 3 & 4 the said order records as
follows:-
"3. The unit was issued a SCN by the SEEPZ SEZ dated
29.9.2010 asking them to show cause as to why penal action
should not be taken against the unit as per the provisions of
Foreign Trade (D & R) Act 1992. The unit was also called upon to
explain as to why the Customs and Central Excise Duty forgone
at the time of import/procurement should not be recovered in
terms of legal agreement furnished by the unit. The unit vide its
letter dated 6.6.2011 stated that the DTA sale was made in
accordance with the provisions contained in para 6.8 (a) of FTP.
However, instead of calculating quarterly entitlement of DTA.
sale, it was worked out on day to day basis considering nature of
product and environmental hazards attached thereto. Keeping in
view the submissions made by the unit in their letter dated
6.06.2011 refer to above, a penalty of Rs. 2 lakh was imposed
on the unit by the concerned DC SEEPZ, SEZ. Mumbai for
violation of the directions contained in para 6.8 (a) of the FTP.
4. The unit was granted personal hearing vide letter dated
16.1.2012. Keeping in view the submissions made by the unit
during the course of the meeting, it was observed by the
Appellate Committee that the case is peculiar in nature/unique.
Therefore, the Committee decided to remand back the case to
the concerned DC SEFPZ, SEZ Mumbai for taking necessary
action in accordance with the directions contained in para 6.8 (8)
of FTP, for counting the period of NFE considering the nature of
product and environmental hazards attached thereto."
8 E/1238/2012
4.3 In the remand proceedings vide order dated 14.10.2014,
Development Commissioner has in para 24 of the order recorded
as follows:-
"24. The noticee has further contended on 09.08.2012 that the
goods sold by them falls under para 6.8 (e) of Foreign Trade
Policy as the sale made by the noticee was of remnants/
residuals which is not of exportable quality. In this regard, the
noticee has submitted the Chartered Engineer Certificate dated
13.12.2012 stating that "the fly-ash disposed in DTA was of very
low quality and residuals fly ash without processing is to be
disposed off to abide the environmental hazards." In this
context, para 6.8 (e) of the FTP provides that only the scrap/
waste/remnants/ arising out of the production process or in
connection therewith may be sold in DTA. Even if I rely on the
said certificate, it can be safely inferred that this is not waste but
it's a saleable product which can be disposed off in accordance
with the provision of para 6.8 (a) of Foreign Trade policy. It is
also noted that the noticee has not made the submission
regarding the waste before the Central Excise while responding
the SCN dated 09.09.2010 issued by the Central Excise."
4.4 The issue for consideration is whether for the procedure or
violation of para 6.8 of Foreign Trade Policy, the benefit of
exemption can be denied to the appellant. It is the submission
of the appellant that as per para 6.8 (e) of FTP they have sold
the remnants/residual which is not of exportable quality. They
have also furnished a Chartered Engineer's certificate dated
13.12.2012 stating that "process fly ash disposed in DTA is of
very low quality and residual fly ash without processing is to be
disposed off to avoid environmental hazards." Development
Commissioner has recorded that even if he relies on the said
certificate, it can be safely inferred that it is not a waste but it is
a saleable product. That being so, the issue for the purpose of
central excise has been settled in series of judgments whereby it
has been clearly held that even if the goods fetch any value, the
same need not be the saleable goods for the subject of levy of
central excise duty. Reliance in this regard is placed on the
decision of Hon'ble Apex Court in the case of TISCO and Indian
Aluminium.
9 E/1238/2012
5.2 Courts have held that these goods cannot be considered as
manufactured goods and hence not excisable. In the case of
DSCL Sugar Ltd. [2015 (322) ELT 769 (SC)] Hon'ble Supreme
Court held as follows:-
"6. The aforesaid judgment was pronounced by this Court
related to the period before 2008. In the year 2008 there was an
amendment in Section 2(d) as well as in Section 2(f) of the Act
which defines 'excisable goods' and 'manufacture' respectively.
Section 2(d) with the said amendment reads as under :
Section 2(d) - "excisable goods" means goods specified in [The
First Schedule and the Second Schedule] to the Central Excise
Tariff Act, 1985 (5 of 1986 ) as being subject to a duty of excise
and includes salt;
Explanation - for the purposes of this clause, "goods" includes
any article, material or substance which is capable of being
bought and sold for a consideration and such goods shall be
deemed to be marketable."
7. As per the aforesaid explanation, "goods" would now include
any article, material or substance capable of being bought or
sold for consideration and as such goods shall be deemed to be
marketable. Thus, it introduce the deeming fiction by which
certain kind of goods are treated as marketable and thus
excisable.
8. However, before the aforesaid fiction is to be applied, it is
necessary that the process should fall within the definition of
"manufacture" as contained in Section 2(f) of the Act. The
relevant portion of amended Section 2(f) reads as under :
Section 2(f) - "manufacture" includes any process -
(i) incidental or ancillary to be completion of a manufactured
product;
(ii) which is specified in relation to any goods in the section or
Chapter notes of [The First Schedule] to the Central Excise Tariff
Act, 1985 (5 of 1986) as amounting to [manufacture; or]
10 E/1238/2012
(iii) which in relation to the goods specified in the Third
Schedule, involves packing or repacking of such goods in a unit
container or labelling or re-labelling of containers including the
declaration or alteration of retail sale price on it or adoption of
any other treatment on the goods to render the product
marketable to the consumer;
and the word "manufacture" shall be construed accordingly and
shall include not only a person who employs hired labour in the
production or manufacture of excisable goods, but also any
person who engages in their production of manufacture on his
own account;"
9. The Revenue sought to cover the case under sub-clause (ii)
as per which the process which is satisfied in relation to any
goods in the Section or Chapter notices of the First Schedule to
the Central Excise Tariff Act, 1985 would amount to
'manufacture'. Here again, fiction is created by including those
goods as amounting to manufacture in respect of which process
is specified in the Section or Chapter notices of the First
Schedule."
5.3 In the case of Titawai Sugar Ltd. [2002 (147) ELT 1069
(T)], the following was observed:-
"5. In this case, the Revenue is asking for duty under Rule
57CC of the Central Excise Rules on the sale of press-mud which
was cleared by the appellants. The contention of the appellants
is that they were engaged in the manufacture of sugar and the
press-mud is only residual waste. It is not a by-product for their
final product. The Tribunal in the case of Shankar Sugar Mills
(supra) specifically held that press-mud, arising during the
manufacture of sugar, is not marketable commodity and,
therefore, is not excisable. Rule 57CC of the Central Excise Rules
provides only adjustment of credit on inputs used in the
manufacture of final product where a manufacturer is engaged in
the manufacture of final product chargeable to excise duty as
well as any other final product which is exempted from payment
of excise duty or chargeable to nil rate of duty. The Tribunal in
the case of Shankar Sugar Mills (supra) held that press-mud is
waste and, therefore, it cannot be said to be excisable. Since the
11 E/1238/2012
product is not excisable, the question of its being exempted from
payment or otherwise, does not arise."
Upholding this judgment, Hon'ble Supreme Court in its decision
reported at [2003 (152) ELT 21 (SC)] held as follows:-
"Heard learned counsel for the parties. The Tribunal allowed the
appeal filed by the assessee by referring to its earlier decision in
A/1038/99-NB(SM), dated 24-9-99 wherein it was held that
press-mud would not be a marketable commodity and therefore
not excisable. Admittedly, the Department has accepted the
decision rendered by the Tribunal in Shankar Sugar Mills and has
not challenged the same. Further, the Department has not led
any evidence to establish that press-mud was in any way
marketable commodity. Hence these appeals are dismissed."
5.5 In the case of Bansal Industrial Gases Bihar Ltd. [2002
(147) ELT 1057 (T)] Tribunal has held as follows:-
"7. We also observe that in the case of M/s. Bansal Industrial
Gases Ltd. the Collector (Appeals) had observed that the
occasion on which the buyers took the carbide sludge and used it
was very rare. There was no sale during 1984-85 and the price
realised was also very negligible, around 0.75ps. per kg. The
Supreme Court in the case of Union of India v. Indian Aluminium
Co., 1995 (77) E.L.T. 268 has held that the aluminium dross and
skimmings are not goods or marketable commodities which can
be subjected to levy of excise, though undoubtedly, they do
arise during the process of manufacture. The Supreme Court
observed that it may be possible to recover some metal from
such dross and skimmings and, therefore, they can be sold but
this does not make them as marketable commodity. The
Supreme Court held that :
"Even rubbish can be sold. Everything, however, which is sold is
not necessarily a marketable commodity as known to commerce
and which, it may be worthwhile to trade in........."
We also observe that the Appellate Tribunal in the case of Vikas
Industrial Gases Ltd. v. C.C.E., Allahabad, 1996 (84) E.L.T. 32
(Tribunal) held that the only ground on which the carbide sludge
was held to be excisable was that it was sold for a price which
12 E/1238/2012
cannot be valid ground to determine the excisability of the
impugned product. In view of these decisions and the mere fact
that some price is fetched by the impugned product, it cannot be
held that the product is marketable in its ordinary meaning.
Accordingly we allow the appeals filed by M/s. Asiatic Oxygen
Ltd. and Rishi Gas (P) Ltd. and reject the appeals filed by the
Revenue."
Affirming this decision, Hon'ble Supreme Court, reported as
[2003 (151) ELT 4 (SC)], held as follows:-
"3. After remand also the appellant has not led any evidence to
conclusively prove that the sludge which was manufactured by
the appellant was in any way marketable. The Tribunal after
considering the evidence on record arrived at the conclusion that
Acetylene gas is manufactured by the interaction of calcium
carbide with water in a chamber specifically made for the
purpose. While the gas generated is drawn from the top of the
chamber the residual sludge mixed with the water in liquid state
is discharged at intervals from the bottom of the chamber into
the drain for being collected into pits. That sludge thereafter is
removed from the factory. It arrived at the conclusion that the
said sludge is not marketable and, therefore, no excise duty can
be levied. In our view, the said finding of fact does not call for
interference in these appeals. Hence, these appeals are
dismissed."
5.6 If these goods are not excisable goods, then the demand
should fail on this account itself.
5.7 Further we take note of Section 3 of the Central Excise Act,
1944, as per which the demand has been proposed. Section 3
reads as follows:-
"SECTION 3. Duty specified in the Fourth Schedule to be
levied. -- (1) There shall be levied and collected in such
manner as may be prescribed a duty of excise to be called the
Central Value Added Tax (CENVAT) on all excisable goods
(excluding goods produced or manufactured in special economic
zones) which are produced or manufactured in India as, and at
the rates, set forth in the Fourth Schedule :
13 E/1238/2012
Provided that the duty of excise which shall be levied and
collected on any excisable goods which are produced or
manufactured by a hundred per cent. export-oriented
undertaking and brought to any other place in India, shall be an
amount equal to the aggregate of the duties of customs which
would be leviable under the Customs Act, 1962 (52 of 1962) or
any other law for the time being in force, on like goods produced
or manufactured outside India if imported into India, and where
the said duties of customs are chargeable by reference to their
value, the value of such excisable goods shall, notwithstanding
anything contained in any other provision of this Act, be
determined in accordance with the provisions of the Customs
Act, 1962 and the Customs Tariff Act, 1975 (51 of 1975).
Explanation 1. -- Where in respect of any such like goods, any
duty of customs leviable for the time being in force is leviable at
different rates, then, such duty shall, for the purposes of this
proviso, be deemed to be leviable at the highest of those rates.
Explanation 2. -- For the purposes of this sub-section, --
(i) "hundred per cent. export-oriented undertaking" means an
undertaking which has been approved as a hundred per cent.
export-oriented undertaking by the Board appointed in this
behalf by the Central Government in exercise of the powers
conferred by section 14 of the Industries (Development and
Regulation) Act, 1951 (65 of 1951), and the rules made under
that Act;
(ii) .....
(2) ...
(3) ...
5.8 Even in terms of the proviso to the section 3 (1) in terms
of which appellant has discharged the duty liability or the
demand has been made the duty could have been demanded
only on the goods that are produced or manufactured in India
and brought to any other place in India. The proviso do not put
any condition to the effect that the goods should have been
permitted to clear for sale in DTA by the Development
Commissioner. Undisputedly the goods in question have been
produced or manufactured out the raw material procured
14 E/1238/2012
domestically. The serial No 4 of the exemption Notification No
23/2003-CE and the associated conditions are reproduced
below:
Any All goods produced or In excess of amount equal to 4
4 Chapter manufactured wholly 30% of the duty payable
from the raw materials under section 3 of the
produced or Central Excise Act, 1944.
manufactured in India,
Illustration.- Assuming
other than those
product X has the value Rs.
referred to in Sr.
100 under section 14 of the
Nos.5, 6 and 7 of this
Customs Act,1962 and is
table.
chargeable to basic custom
duty of 25% advalorem,
special additional duty of 4%
ad valorem and not
chargeable to additional
duty. The computation of
duty required to be paid
would be as follows:
Basic Customs duty = Rs.
25/-Value for the purpose of
special additional duty if
leviable = Rs. 100/- +
Rs.25/- = Rs. 125/-
special additional duty if
leviable= 4% of Rs. 125/-=
Rs. 5.0/-
Total duty payable but for
this exemption= Rs. 25/-+
Rs. 5.00/-= Rs. 30.00/-
Thirty per cent. of the
aggregates of the duties of
customs= 30% ofRs.30.00/-
= 9.00/-Duty required to be
paid in accordance with this
notification = Rs. 9.00/-
4. If,-
(i) the goods are produced or manufactured wholly from the
raw materials produced or manufactured in India;
(ii) such finished goods are cleared into Domestic Tariff Area
in accordance with sub-paragraphs (a), (b), (d) and (h) of
Paragraph 6.8 of the Export and Import Policy; and
(iii) the goods, if manufactured and cleared by the unit other
than export oriented undertaking are wholly exempt from
duties of Excise or are chargeable to "NIL" rate of duty.
The provisions of Export Import Policy, relevant for
interpretation of the conditions of notification are reproduced
below:
DTA Sale of Finished Products / Rejects/Waste/Scrap / Remnants
and Byproducts
15 E/1238/2012
6.8 Entire production of EOU /EHTP/STP/BTP units shall be
exported subject to following:
(a) Units, other than gems and jewellery units, may sell goods
upto 50% of FOB value of exports, subject to fulfilment of
positive NFE, on payment of concessional duties. Within
entitlement of DTA sale, unit may sell in DTA, its products similar
to goods which are exported or expected to be exported from
units. However, units which are manufacturing and exporting
more than one product can sell any of these products into DTA,
upto 90% of FOB value of export of the specific products, subject
to the condition that total DTA sale does not exceed the overall
entitlement of 50% of FOB value of exports for the unit, as
stipulated above. No DTA sale at concessional duty shall be
permissible in respect of motor cars, alcoholic liquors, books, tea
(except instant tea), pepper & pepper products, marble and such
other items as may be notified from time to time. Such DTA sale
shall also not be permissible to units engaged in activities of
packaging/ labeling/ segregation/ refrigeration/ compacting/
micronisation/ pulverization/ granulation/ conversion of
monohydrate form of chemical to anhydrous form or vice-versa.
Sales made to a unit in SEZ shall also be taken into account for
purpose of arriving at FOB value of export by EOU provided
payment for such sales are made from Foreign Exchange
Account of SEZ unit. Sale to DTA would also be subject to
mandatory requirement of registration of pharmaceutical
products (including bulk drugs). An amount equal to Anti-
Dumping duty under section 9A of the Customs Tariff Act, 1975
leviable at the time of import, shall be payable on the goods
used for the purpose of manufacture or processing of the goods
cleared into DTA from the unit.
(d) Unless specifically prohibited in LoP, rejects within an
overall limit of 50% may be sold in DTA on payment of duties as
applicable to sale under sub-para 6.8(a) on prior intimation to
Customs authorities. Such sales shall be counted against DTA
sale entitlement. Sale of rejects upto 5% of FOB value of exports
shall not be subject to achievement of NFE.
16 E/1238/2012
(e) Scrap/ waste / remnants arising out of production process
or in connection therewith may be sold in DTA, as per SION
notified under Duty Exemption Scheme, on payment of
concessional duties as applicable, within overall ceiling of 50% of
FOB value of exports. Such sales of scrap / waste / remnants
shall not be subject to achievement of positive NFE. In respect of
items not covered by norms, DC may fix ad-hoc norms for a
period of six months and within this period, norms should be
fixed by Norms Committee. Ad-hoc norms will continue till such
time norms are fixed by Norms Committee. Sale of waste / scrap
/ remnants by units not entitled to DTA sale, or sales beyond
DTA sale entitlement, shall be on payment of full duties.
Scrap/waste / remnants may also be exported.
(h) EOU/ EHTP/ STP/ BTP units may sell finished products,
except pepper and pepper products and marble, which are freely
importable under FTP in DTA, under intimation to DC, against
payment of full duties, provided they have achieved positive
NFE. An amount equal to Anti Dumping duty under section 9A of
the Customs Tariff Act, 1975 leviable at the time of import, shall
be payable on the goods used for the purpose of manufacture or
processing of the goods cleared into DTA from the unit.
In the impugned order Commissioner (Appeal) has concluded
that for considering the clearance of the goods in the present
case the para 6.8 (d), (e) & (h) are not relevant and the matter
needs to be considered in terms of para 6.8 (a). Commissioner
(Appeal) has relied on the findings recorded by the Development
Commissioner SEEPZ, SEZ in her order dated 17.08.2011 to hold
that condition of 6.8 (a) are not satisfied. However the said
order has been set aside by the appellate authority vide order
dated 14.02.2012 holding as follows:
"2. The Committee noted that the unit being a converted unit,
was not eligible for advance DTA Sale as per appendix 14- I-H
(G) of HBP and that the unit, however could effect DTA Sale on
quarterly/half yearly or on annual basis as per para (c) of
Appendix - 14-I-H of HBP subject to achievement of positive NFE
under 6.8 (a) of FTP. The unit could effect DTA sale subject to
achievement of positive NFE after completing the quarter July-
17 E/1238/2012
September 2009 onwards. In case the unit effected DTA sale
prior to October 2009, the unit violated the provisions of para
6.8 (a) of FTP.
3. The unit was issued a SCN by the SEEPZ SEZ dated 2
9.9.2010 asking them to show cause as to why penal action
should not be taken against the unit as per the provisions of
Foreign Trade (D & R) Act 1992. The unit was also called upon to
explain as to why the Customs and Central Excise Duty forgone
at the time of import/procurement should not be recovered in
terms of legal agreement furnished by the unit. The unit vide its
letter dated 6.6.2011 stated that the DTA sale was made in
accordance with the provisions contained in para 6.8 (a) of FTP.
However, instead of calculating quarterly entitlement of DTA
sale, it was worked out on day to day basis. considering nature
of product and environmental hazards attached thereto. Keeping
in view the submissions made by the unit in their letter dated
6.06.2011 refer to above, a penalty of Rs. 2 lakh was imposed
on the unit by the concerned DC SEEPZ, SEZ. Mumbai for
violation of the directions contained in para 6.8 (a) of the FTP.
4. The unit was granted a personal hearing vide letter dated
16.1.2012. Keeping in view the submissions made by the unit
during the course of the meeting, it was observed by the
Appellate Committee that the case is peculiar in nature/unique.
Therefore, the Committee decided to remand back the case to
the concerned DC SEFPZ, SEZ Mumbai for taking necessary
action in accordance with the directions contained in para 6.8 (a)
of FTP, for counting the period of NFE considering the nature of
product and environmental hazards attached thereto."
5.9 Further he refers to Appendix 14-I-H of Hand Book of
procedures and observes that this appendix provides for the
guidelines for sale of goods in domestic tariff area by EOU and as
per said appendix, these sales will be governed by the said
guidelines. In our view Notification do not prescribes for any
such reference to the said guidelines.. The Appendix 14-I-H of
the Handbook For Procedures is not even referred to in the
notification and the reference made to the same would be
contrary to settled principles of interpretation of the exemption
18 E/1238/2012
notification. In case of Dilip Kumar and Company, a Five Judges
Bench of Hon'ble Supreme Court has observed as follows:
"27. Now coming to the other aspect, as we presently discuss,
even with regard to exemption clauses or exemption
notifications issued under a taxing statute, this Court in some
cases has taken the view that the ambiguity in an exemption
notification should be construed in favour of the subject. In
subsequent cases, this Court diluted the principle saying that
mandatory requirements of exemption clause should be
interpreted strictly and the directory conditions of such
exemption notification can be condoned if there is sufficient
compliance with the main requirements. This, however, did not
in any manner tinker with the view that an ambiguous
exemption clause should be interpreted favouring the revenue.
Here again this Court applied different tests when considering
the ambiguity of the exemption notification which requires strict
construction and after doing so at the stage of applying the
notification, it came to the conclusion that one has to consider
liberally.
35. In the judgment of two Learned Judges in Union of India v.
Wood Papers Limited, (1990) 4 SCC 256 = 1990 (47) E.L.T. 500
(S.C.) [hereinafter referred as Wood Papers Ltd. case' for
brevity], a distinction between stage of finding out the eligibility
to seek exemption and stage of applying the nature of
exemption was made. Relying on the decision in Collector of
Central Excise v. Parle Exports (P) Ltd., (1989) 1 SCC 345, it
was held "Do not extend or widen the ambit at the stage of
applicability. But once that hurdle is crossed, construe it
liberally". The reasoning for arriving at such conclusion is found
in para 4 of Wood Papers Ltd. case (supra), which reads -
"... Literally exemption is freedom from liability, tax or duty.
Fiscally, it may assume varying shapes, specially, in a growing
economy. For instance tax holiday to new units, concessional
rate of tax to goods or persons for limited period or with the
specific objective, etc. That is why its construction, unlike
charging provision, has to be tested on different touchstone. In
fact, an exemption provision is like an exception and on normal
19 E/1238/2012
principle of construction or interpretation of statutes it is
construed strictly either because of legislative intention or on
economic justification of inequitable burden or progressive
approach of fiscal provisions intended to augment State revenue.
But once exception or exemption becomes applicable no rule or
principles requires it to be construed strictly. Truly speaking
liberal and strict construction of an exemption provision are to
be invoked at different stages of interpreting it. When the
question is whether a subject falls in the notification or in the
exemption clause then it being in nature of exception is to be
construed strictly and against the subject, but once ambiguity or
doubt about applicability is lifted and the subject falls in the
notification then full play should be given to it and it calls for a
wider and liberal construction...''
(emphasis supplied)
38. We will now consider another Constitution Bench decision in
Commissioner of Central Excise, New Delhi v. Hari Chand Shri
Gopal, (2011) 1 SCC 236 = 2010 (260) E.L.T. 3 (S.C.)
[hereinafter referred as 'Hari Chand case' for brevity]. We need
not refer to the facts of the case which gave rise to the questions
for consideration before the Constitutional Bench. K.S.
Radhakrishnan, J., who wrote the unanimous opinion for the
Constitution Bench, framed the question, viz., whether
manufacturer of a specified final product falling under Schedule
to the Central Excise Tariff Act, 1985 is eligible to get the benefit
of exemption of remission of Excise duty on specified
intermediate goods as per the Central Government Notification
dated 11-8-1994, if captively consumed for the manufacture of
final product on the ground that the records kept by it at the
recipient end would indicate its "intended use" and "substantial
compliance" with procedure set out in Chapter 10 of the Central
Excise Rules, 1944, for consideration? The Constitution Bench
answering the said question concluded that a manufacturer
qualified to seek exemption was required to comply with the
preconditions for claiming exemption and therefore is not
exempt or absolved from following the statutory requirements as
contained in the Rules. The Constitution Bench then considered
and reiterated the settled principles qua the test of construction
20 E/1238/2012
of exemption clause, the mandatory requirements to be
complied with and the distinction between the eligibility criteria
with reference to the conditions which need to be strictly
complied with and the conditions which need to be substantially
complied with. The Constitution Bench followed the ratio in
Hansraj Gordhandas case (supra), to reiterate the law on the
aspect of interpretation of exemption clause in para 29 as follows
-
"The law is well-settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, thought at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non- compliance of which would not affect the essence or substance of the notification granting exemption."
39. The Constitution Bench then considered the doctrine of substantial compliance and "intended use". The relevant portions of the observations in paras 31 to 34 are in the following terms -
"31. Of course, some of the provisions of an exemption notification may be directory in nature and some are mandatory in nature. A distinction between the provisions of a statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished...
Doctrine of substantial compliance and "intended use"
32. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected 21 E/1238/2012 of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the "essence" or the "substance" of the requirements. Like the concept of "reasonableness", the acceptance or otherwise of a plea of "substantial compliance" depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the pre-requisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleased if a clear statutory pre-requisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means "actual compliance in respect to the substance essential to every reasonable objective of the statute" and the Court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed.
33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted.
22 E/1238/2012
34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance with those factors which are considered as essential.""
5.10 In case of Skipper Electricals India Limited [2017 (3550 ELT 591 (T) following has been held:
"4. After hearing both sides and on perusal of record, it appears that manufacture and sale of the DTA is not in question since it was as per the permission letter granted by the learned Development Commissioner. But the only issue involved is that the assessee-Respondents have not informed the Department well within time about the DTA sale. It may be mentioned that the Tribunal in the case of C.C.E. & C v. J.S. Gupta & Sons, 2015 (318) E.L.T. 63 (All.), has observed that :
"39. There are condition and conditions, some may be substantive mandatory based on considerations of policy, and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve. A distinction between the provisions of statute which are of substantive character and were built in with certain specific objectives or policy on the one hand, and those which are merely procedural and technical in their nature on the other, must be kept clearly distinguished. In fact, it is now a trite law that the procedural infraction of notifications/circulars etc. are to be condoned if exports have really taken place and the law is settled now that substantive benefit cannot be denied for procedural lapses. Procedure has been prescribed to facilitate 23 E/1238/2012 verification of substantive requirements. The core aspect or fundamental requirement for debate is its manufacture and subsequent export. As long as this requirement is met, other procedural deviations can be condoned."
5. Further, it may be mentioned that the Hon'ble Supreme Court in the case of Udai Shankar Triyar v. Ram Kalewar Prasad Singh & Anr., 2005 AIR SCW 5851, has observed that, procedure, a hand maiden to justice, should never be made a tool to deny justice or perpetuate injustice. In the instant case, we are of the view that the mistake was just merely a procedural one which was rectified later as observed by the Commissioner (Appeals) in the impugned order. When it is so, then we find no reason to interfere with the impugned order and the same is hereby sustained along with the reasons mentioned therein."
5.11 Thus in our view appellant has complied with the conditions as specified in the notification for availing the benefit of exemption. However we also take note of the relevant provisions of Appendix 14-I-H of Handbook of Procedures relevant for further considering the issue.
(e) An application for sale of goods in DTA (as per EOU Scheme) by the EOUS shall be submitted to the Development Commissioner concerned in the form given at Annexure-A. The application shall be certified by an independent Cost/Chartered /Cost and Works Accountant and endorsed by the Bond Officer of Customs/Central Excise having jurisdiction over the unit. The Development Commissioner concerned will determine the extent of the DTA sale admissible and issue authorization in terms of value. However, EOUS having status holder certificate can sell finished goods into DTA under para 6.8(a) of Foreign Trade Policy under intimation to concerned Development Commissioner and Jurisdictional Central Excise Authority in terms of Para 6.38.8 of Handbook. DTA sale in terms of para 6.8(a) of Policy shall be allowed only after adjustment of advance DTA sale permission is granted.."
Appellant has filed the required intimation with the concerned Development Commissioner and the jurisdiction Central excise 24 E/1238/2012 Officer as required in terms of (e) of Appendix 14-I-H being an One Star Export House Status Holder"
5.12 While remanding the matter appellate authority in DGFT vide order referred earlier has specifically observed that for determining the fulfillment of condition of 6.8 (a) necessary reference should be made to the hazardous nature of the goods. The fact not in dispute, is the hazardous nature of the goods cleared. Further the as per Maharastra Pollution Control Board Certificate granted to the appellant, they were not allowed to store any hazardous material in their premises and the 'processed fly ash' being hazardous in nature was to be cleared immediately. The only deviation is to the effect that the appellant were determining the quantum of permissible domestic clearance on the daily basis rather on the quarterly basis taking into account the hazardous nature of the goods. We are of the opinion the compulsion to prevent environmental hazards should be given due weightage while determining the fulfillment of Condition of 6.8 of the Export Import Policy. Taking into consideration all the above factors we do not find merits in the findings recorded in the impugned order to the effect that condition of the notifications are not fulfilled. They have been substantially complied with.
5.13 On the issue of penalty imposed we do not find any merits in such imposition as we do not find any merits in the order demanding the duty, by denying the exemption.
6.1 Appeal is allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu